TIME-LAG AND COST OVERRUN OF INFRASTRUCTURAL INVESTMENTS WITH SPECIAL REFERENCE TO POWER PROJECTS IN KERALA THESIS SUBMITTED TO COCHIN UNIVERSITY OF SCIENCE AND TECHNOLOGY FOR THE AWARD OF THE DEGREE OF DOCTOR OF PHILOSOPHY IN ECONOMICS UNDER THE FACULTY OF SOCIAL SCIENCES By BABY THOMAS Under the Supervision of Dr. D. RAJASENAN READER DEPARTMENT OF APPLIED ECONOMICS COCHIN UNIVERSITY OF SCIENCE AND TECHNOLOGY COCHIN - 22, KERALA NOVEMBER, 1994 COCHIN UNIVERSITY OF SCIENCE AND TECHNOLOGY DEPARTMENT OF APPLIED ECONOMICS No AE Telephone: 85-6030 Dr.D.RAJASENAN KOCH I - 682 022 Reader KERALA, INDIA November 7, 1994 CERTIFICATE Certified that the thesis "TIME-LAG AND COST OVERRUN OF INFRA STRUCTURAL INVESTMENTS WITH SPECIAL RBFERENCE TO POWER PROJECTS IN KERALA" is the record of bona fide research carried out by Mr.Baby Thomas under my guidance and supervision. The thesis is worth submitting for the degree of Doctor of Philosophy in Economics under the Faculty of Social Sciences. CONTENTS LIST OF TABLES iv Chapter 1 INTRODUCTION 1 Chapter 2 KERALA ECONOMY: A MICRO-ANALYSIS OF ITS RESOURCE BASE 25 Chapter 3 TIME-LAG AND COST OVERRUN IN THE CENTRAL-SECTOR INVESTMENTS IN INDIA 67 Chapter 4 TIME-LAG AND COST OVERRUN OF INVESTMENTS IN KKRALA: AN ECONOMIC ANALYSIS 116 Chapter 5 TIME-LAG AND COST OVERRUN OF HYDRO ELECTRIC PROJECTS OF KERALA: A PROJECT-WISE STUDY 138 Chapter 6 TIME-LAG AND COST OVERRUN OF HYDRO ELECTRIC PROJECTS: AN ECONOMIC ANALYSIS 230 Chapter 7 TIME-LAG AND COST OVERRUN--A CASE STUDY OF SABARIGIRI HYDRO E-LECTRIC PROJECT 264 Chapter 8 CAUSATIVE ANALYSIS OF TIME-LAG AND COST OVERRUN OF HYDRO ELECTRIC PROJECTS-- A MACRO-ANALYSIS 345 Chapter 9 IMPACT OF TIME-LAG AND COST OVERRUN ON ECONOMIC DEVELOPMENT 383 Chapter 10 CONCLUSIONS AND RECOMMENDATIONS 416 APPENDIX 435 BIBLIOGRAPHY 444 iii LIST OF TABLES Table No. Ti t le Page 2.1 Cumulative Plan Expenditure from First Plan (1951-56) to Seventh Plan (1985-90) 26 2.2 Per Capita Net State Domestic Product (1980-81, 1985-86, 1987-88 - New series) 30 2.3 Categorisation of States by Sarkaria Commission 32 2.4 Per Capita Net Domestic Product Among the Indian States 33 2.5 Percentage Composition of State Taxes in the Year 1957-58 and 1984-85 36 2.6 Working Results of the Public Sector Under- ings as on 31st March 1993 37 2.7 Public Sector Industrial Undertakings and the Magnitude of Accumulated loss 39 2.8 Annual Average Per Capita Central Transfers Al 2.9 Central Sector Industrial Investment in Kerala 43 2.10 State-wise Financial Assistance Disbursed by All India Financial Institutions as at the End of March 1993 45 2.11 Credit Deposit Ratio of Public Sector Banks (As at the End of March 1993) 47 2.12 Kerala Budget--Surplus and Deficit Over the Years 50 2.13 State-wise Per Capita Expenditure (1974-1988) (Total of the Plan and Non-plan) 52 2.14 State-wise Per Capita Expenditure (1979-1988) 54 2.15 Trends in Revenue Expenditure (1983-84 to 1991-92) 59 iv 2.16 Trends in Non-developmental Revenue Expenditure 61 2.17 Trends in Developmental Expenditure (1983-84 to 1991-92) 63 3.1 The Total Projects and the Volume of Investments in Central Sector as on 1-2-1986 30-9-1987, 1-1-1989 and 1-1-1990 69 3.2 Time-lag and Cost Overrun: A Study of Central Sector Investments as on 1-1-1990 (Ongoing Projects) 71 3.3 Time-lag and Cost Overrun of Power Projects in the Central Sector as on 1-1-1990 77 3.4 Time and Cost Overrun of Ongoing Fertilisers Projects--A Temporal Study with Project Level as on 1-1-1990 87 3.5 Time and Cost Overrun Trends of the Ongoing and Completed Railway Projects as on 1-1-1990 89 3.6 The Time and Cost Overrun Trends of the Ongoing Power Projects--A Temporal Study at the Project Level (As on 1-1-1990) 92 3.7 Trends in Cost and Time Overrun of Central Sectoral Projects which are Scheduled to be Completed/Comple'ted during 1987~88, 1988-89 and 1990-1991 101 3.8 Time and Cost Overrun of Projects Scheduled for Completion in 1991 107 3.9 Causative Factors of Time and Cost Overrun of 163 Projects in the Central s.ector as on 1-1-1990 114 4.1 Time-lag and Cost Overrun of Completed Irrigation Projects in Kerala 118 4.2 Time-lag and Cost Overrun of Ongoing Irrigation Projects in Kerala 120 v 4.3 Time-lag and Cost Overrun of Completed Hydro Electric Projects in Kerala as on 3/93 124 4.4 Time-lag and Cost Overrun of Ongoing Hydro Electric Projects in Kerala as on 3/92 128 4.5 Time-lag and Cost Overrun of Indust ries in Kerala 133 4.6 Time-lag and Cost Overrun of Completed Projects in Kerala 135 4.7 The Item-wise Cost Overrun of Projects 137 5.1 The Item-wise Details of the Original Estimated Cost of Pal.livasal Project Stage I 140 5.2 Time-lag and Cost Overrun of Pallivasal Hydro Electric Project State I 141 5.3 Time and Cost Overrun ·of Sengulam Hydro Electric Project 142 5.4 Time-lag and Cost Overrun of Neriamangalam Hydro Electric Project 144 5.5 Time-lag and Cost Overrun of Panniar Hydro Electric Project 146 5.6 Time-lag and Cost Overrun of Peringalkuthu Hydro Electric ~roject 147 5.7 Time-lag and Cost Overrun of Sabarigiri Hydro Electric Project 150 5.8 Time-lag and Cost Overrun ofSholayar Hydro Electric Project 152 5.9 Time-lag and Cost Overrun of Kuttiady Hydro Electric Project 154 5.10 Time-lag and Cost Overrun of Idukki Hydro Electric Project Stage I 156 5.11 Time-lag and Cost Overrun of Idukki Hydro Electric Project Stage 11 158 vi 5.12 Cost and Time Revisions of Idukki Stage III 161 5.13 Cumulative Expenditure on Idukki Stage III 164 5.14 Time-lag and Cost Overrun of Idukki Stage III 166 5.15 Time-lag and Cost Overrun of Idamalayar Hydro Electric Project 168 5.16 Time-lag and Cost Overrun of of Idamalayar Hydro Electric Project 169 5.17 Time-lag and Cost Overrun of Sabarigiri Augmentation Scheme 172 5.18 Time-lag and Cost Revisions of Sabarigiri Augmentation 173 5.19 Cash Flow to the Sabarigiri Augmentation Scheme 175 5.20 Time-lag and Cost Overrun of Kakkad Hydro Electric Project 178 5.21 Detailed Presentation of Cost Overrun of Kakkad Hydro Electric Project 180 5.22 The Time and Cost Revisions of Kakkad Hydro Electric Project 183 5.23 The Outlay and Expendi ture on Kakkad HEP Over Plans 184 5.24 The Time-lag and Cost Overrun of Kallada HEP 186 5.25 The Split up Cost Overrun of Kallada Hydro Electric Project 188 5.26 Cost Revision and Time-Revision of Kallada HEP 190 5.27 Annual Cumulative Spending on Kallada Hydro Electric Project 191 5.28 Time-lag and Cost Overrun of Lower Periyar Hydro Electric Project 194 vii 5.29 Time Revisions and Cost Revisions of Lower Periyar.Hydro Electric Project 196 5.30 Cumulat i ve Annual Expenditure on the Lower Periyar HEP 197 5.31 Time-lag and Cost Overrun of Mattupetty Hydro Electric Project 199 5.32 Time Revisions and Cost Revisions of Mattupetty Hydro Electric Project 200 5.33 Time-lag and Cost Overrun of Malampuzha Hydro Electric Project 202 5.34 Time Revision and Cost Revision of Malampuzha Hydro Electric Project 203 5.35 Time-lag and Cost Overrun of Azhutha Diversion Scheme 205 5.36 Time and Cost Revisions of Azhutha Diversion Scheme 206 5.37 Time-lag and Cost Overrun of Malankara Hydro Electric Project 208 5.38 Time Revisions and Cost Revisions of Malankara Hydro Electric Project 209 5.39 Time-lag and Cost Overrun of Pooyamkutty Hydro Electric Project 211 5.40 Time-lag and Cost Overrun of Peppara Hydro Electric Project 213 5.41 Time Revisions and Cost Revisions of Peppara Hydro Electric Project 214 5.42 Time-lag and Cost Overrun of Chimoni Hydro Electric Project 216 5.43 Time Revisions and Cost Revisions of Chimoni Hydro Electric Project 217 5.44 Time-lag and Cost Overrun of Vadakkepuzha Diversion Scheme 218 viii 5.45 Revision of Time and Cost. of Vadakkepuzha Diversion Scheme 219 5.46 Time-lag and Cost Overrun of Kuttiar Diversion Scheme 221 5.47 Time-lag and Cost Overrun of Poringalkuthu Hydro Electric Project 223 5.48 Time-lag and Cost Overrun of Kuttiady Tail Race Scheme 225 5.49 Time-lag and Cost Overrun of Vazhikadavu Diversion Scheme 226 6.1 A Project-wise Presentation of Time-lag and Cost Overrun of Completed Hydro Electric Projects 231 6.2 The Relationship between Cost Overrun and Time-lag--A Cost Based Analysis of Completed Hydro Electric Projects 235 6.3 The Relati.onship Between Time Overrun and Cost Overrun--A Time Overrun Based Analysis of Completed Hydro Electric Projects 236 6.4 Classification of Completed Hydro Electric Projects of Kerala on the Basis of Cost as Percentage Increase Over the Original Est imat'ed Cost 240 6.5 Classification of Time-lag of Hydro Electric Projects 241 6.6 The Size of the Completed Hydro Electric Projects of Kerala and Time-lag and Cost Overrun 244 6.7 Time Overrun of Hydro Electric Projects and Year of Project Starting 248 6.8 Cost Overrun and Year of Project Starting 249 6.9 Time-lag and Cost Overrun of Hydro Electric Projects Completed--An Year-wise Study 251 ix 6.10 Time-lag and Cost Overrun of Hydro Electric Projects of Kerala and Other States Completed during 1985-90 255 6.11 The Extent of Time-lag and Cost Overrun of Ten Completed Hydro Electric Projects of Kerala (period-wise) 258 6.12 The Extent of Time-lag and Cost Overrun of Ten Completed Irrigation Projects of Kerala (period-wise) 259 7.1 Time-lag and Cost Overrun of Sabarigiri Hydro Electric ~roject 268 7.2 Scheme-wise Presentation of Time-lag of Sabarigiri Hydro Electric Project 270 7.3 Scheme-wise Presnetation of Cost Overrun of Sabarigiri Hydro Electric Project 272 7.4 The Major Events Related to Pamba Dam-­ Sabarigiri Hydro Electric Project 278 7.5 Kakki Dam--Major Events in its Construction Programme 295 7.6 Time